The code of monetary policy should work for all of us

Ho Chi Minh City, Vietnam - One of my favorite economists is Dean Baker from the Center for Economic Policy Research. He has an insightful and subtly humorous blog called, Beat the Press which has made me a fan of his work. Mr. Baker is a free market economist who has consistently reported on the policy failures in American monetary policy and has provided practical solutions to prevent those failures from happening again.

For decades, Baker has been documenting and speaking about how economic policy created the massive inequality we see today. Those conditions led to the rise and collapse of the housing bubble which popped in 2008. Baker's point in this video, this article and 20 years of documentation in books and journals is simple: The collapse of the housing bubble didn't just happen due to the way economics works. We made the financial crisis happen with our public policy choices.

Another way to describe public policy is that public policy consists of laws, regulations and court decisions. laws are passed by legislatures and checked by the executive branch and the judicial branch. Regulations are promulgated by the respective agencies charged with the responsibility of enforcing the laws. Courts check the power of the other branches of government and often have their decisions codified as law. Wait. Did I just say, "codified"?

All law, in a very real sense is code. For example, in California, the Department of Motor Vehicles enforces the Motor Vehicle Code. When a police officer writes a traffic ticket, he is enforcing the Motor Vehicle Code. The code is actually a series of instructions for enforcing the laws as passed by the legislature and signed by the governor. It is not a far stretch to say that our laws, our code of conduct if you will, is an algorithm.

Computer code is also an algorithm, a series of steps or instructions for completing a task, such as calculating a sum or classifying a record. When we use computers, we are often unaware of the source code of the programs we use on computers. The source code is the set of instructions that determine how the operating system and the applications running on top of the operating system work.

When we use a computer, we are only concerned if we get the desired results from our efforts. We use a browser and expect it to open Steemit.com when we enter the URL. When we use a spreadsheet, we expect it to provide an accurate sum of a series of numbers. When we use a word processor, we expect it to provide an accurate representation of what we wrote. When we use a personal accounting program, we expect to be able to balance our checkbooks with it.

Computer code is agnostic as to the user. It doesn't care who the user is, but the user does care if the code is fit for the intended purpose. The same should be true of the law. I read long ago, and I can't remember who said it (was it FA Hayek or Bastiat?), that the true test of a good law is if one cannot accurately predict of who will benefit from the law. The law should be agnostic and should benefit and be applied equally to all.

The reason the housing bubble arose and collapsed is precisely because those who were in power before, during and after the collapse of the housing bubble could buy lobby for laws that made it easy to predict that they would benefit from enactment of those laws. To be really blunt, the housing bubble is what happens when self-dealing runs riot.

When rule making is fair, transparent and all stakeholders have a voice, then self-dealing can be held to a minimum. Social pressure can place real limits on self-dealing because the rule making process is open for all to see.

A good example of how this works can be found in the open source software community. With open source software, all stakeholders have a say in the source code before the code is adopted. Stakeholders who are not happy with the direction of their open source project are free to fork the code. A good example this is the way Bitcoin was forked into Bitcoin Cash and Bitcoin Gold.

Cryptocurrency isn't just about giving us many choices for a medium of exchange. It is also about democratizing monetary policy. The men and women who write the code that make cryptocurrency protocols have next to zero influence in monetary policy. Like many of us, they were powerless to stop the rise of the housing bubble and the governments response to it. By creating the infrastructure for Bitcoin, they created an opportunity to displace or disintermediate the incumbents setting monetary policy.

From what I can see, the vast majority of cryptocurrencies are based on open source code and protocols. This code is written and managed by people who freely assemble to write the code, implement it and make things happen and, to the greatest extent possible, irrespective of the incumbent authorities.

It would be reasonable to hope then, that cryptocurrencies provide a means of writing monetary policy that works for all of us, not just for a very wealthy elite minority intent on maintaining their hegemony. We can already see the incumbents working hard to co-opt or hobble cryptocurrency, for they know full well that a public attack could be politically unpalatable.

Baker is correct in his assertion that monetary policy created the housing bubble. He is also correct that most Americans were powerless over the decision making process that made the housing bubble possible. In his video and his article, he correctly points out that over the last 40 years, the economy has grown and that only the top 1% has anything to show from it. This is what happens when those with huge sums of money determine that they are the only people fit to guide public policy: self dealing on a massive scale.

I see in cryptocurrency, an opportunity to shift the balance of power. I have begun considering questions like:

• Could the welfare state be made obsolete if monetary policy served everyone?
• Would war be far less frequent if all stakeholders in the economy had a say in monetary policy?
• Would cryptocurrency provide the means for ordinary people to have a meaningful voice in monetary policy?
• Can cryptocurrencies put an end to the self dealing so prevalent in our current system of economic policies?

I say that the answer to all of these questions is a credible "yes". In every point in history where power is decentralized, the fortunes of mankind have only improved. Cryptocurrenies may yet herald another advance in the social evolution of mankind by decentralizing the formulation of monetary policy.

The true test of a good law is that it is impossible to predict who will benefit from it. Lets hope that through democratically formulated and curated code used to provide the infrastructure for cryptocurrency, we can create monetary policy that serves everyone by displacing the system we have now. Even if cryptocurrencies do not prevail, they can check the power of the existing system. If cryptocurrencies prevail, we may yet see an economic renaissance for the world.